Liability for defective goods

In contracts for design and construction, considerable attention is usually paid to the question of whether the contractor will warrant that its design will be fit for the purpose for which it is intended. It is often the case that insurers will insist that such a warranty is excluded from the contract.

It must also be recognised, however, that irrespective of the obligations that a contractor may owe with regard to design, the contractor may be deemed to have given a warranty in respect of defects in goods and materials used in the works.

This may be the case, even where the employer has specified the use of certain materials and goods. The leading case that clarifies the obligations that a contractor will owe with regards to defective goods and materials was decided by the House of Lords in 1968 in the case of Young & Marten -v- McManus Childs.

McManus Childs was a developer and also, through an agent, main contractor for a housing estate in Gerrards Cross. Young & Marten was a roofing subcontractor. At a meeting before commencement of the works, McManus Childs suggested that certain roof tiles, called 'Somerset 13' should be substituted for those referred to in the original estimate. Young & Marten agreed to the suggestion, and through its sub-subcontractor obtained the required tiles from the manufacturer.

The tiles supplied were apparently sound but, less than 12 months after the roof had been constructed, a considerable number of the tiles began to disintegrate in consequence of a latent defect. Some years later, a number of purchasers of the houses commenced proceedings against McManus Childs claiming damages for breach of contract because of the defective tiles. McManus Childs brought Young & Marten in as a third-party defendant, arguing that if there was a liability to the householders, that liability should pass directly to the roofing subcontractor that had supplied and installed the defective tiles.



Who is liable?

The key question for the House of Lords was whether the roofing subcontractor should be held liable in the circumstances of this case. The subcontractor, Young & Marten, had purchased the specified tiles in the ordinary course of business and fixed them in the required manner.

No criticism was made of the quality of Young & Marten's work of fixing the materials. Young & Marten could not be criticised for having accepted the materials when they were supplied because no defect was apparent at that time. It was only later that the defect manifested itself. Was the subcontractor to be held responsible? The clear answer given by the House of Lords was 'yes'. The subcontractor impliedly warranted that the materials used would be of 'merchantable quality'.

The House of Lords clarified that there are really two types of warranty to be implied into a contract of this type by operation of the Sale of Goods Act 1893. The successor to this Act, the Supply of Goods (Implied Terms) Act 1973, operates with similar effect.

The first warranty is an implied condition that the goods shall be reasonably fit for any purpose that the buyer makes known to the seller. This is subject to a very important proviso that the buyer has relied on the seller's skill or judgment in selecting the goods in question.

The second warranty is that there is to be an implied condition that goods shall be of merchantable quality. This is also the subject of an important proviso, namely that if the buyer has had the opportunity to examine the goods on delivery and has accepted them, there shall be no warranty in respect of patent, or apparent, defects in the goods.

As regards to both these warranties, it does not matter whether the contract is purely for supply of the goods or materials, or whether the contract is for supply and installation. Importantly, however, both warranties may be excluded by an express term to the contrary contained in the contract.



Relying on the subcontractor

Returning to the Somerset 13 tiles, it was clear that the tiles to be used were chosen by McManus Childs, the main contractor, and not by the subcontractor. It could not be said, therefore, that the main contractor had placed reliance on the subcontractor in specifying this particular tile. Accordingly, the implied term as to fitness for purpose of the tile was excluded.

However, the House of Lords held a different view as to the second type of warranty. It held that, even if there was no reliance on the skill of the subcontractor in the selection of the materials, that would not prevent the contract being subject to an implied term that the material supplied must be of merchantable quality. That warranty would extend to latent defects, as well as to defects apparent at the time of delivery of the goods and materials.

The key distinction between the fitness for purpose warranty and the less-searching warranty of merchantable quality is that the latter would take into account the description applied to the materials and the price paid. Thus, in assessing 'merchantable quality', one would have to take into account whether, for example, a discount had been given to reflect that the goods were seconds.

In consequence, the House of Lords held that the damages that McManus Childs had been held liable to pay the householders could properly be passed over to its roofing subcontractor, Young & Marten. Irrespective of the fact that Young & Marten had not specified the particular tiles, it was nevertheless bound to supply tiles of merchantable quality, and had failed to do so.